Thursday, February 26, 2009

The Metaphor, the President, and the Critic

Anon’ writes (25 February) on (‘Rambling rants from the lunatic fringe'), HERE:

This will not help

President Obama today said “If we once again guide the market’s invisible hand with a higher principle, our markets will recover, our economy will once again thrive and America will once again lead the world in this new century as it did in the last”.

Has he actually read The Wealth of Nations, the classic Adam Smith book that coined the term “invisible hand?” Does he even know what the term means?

Evidently not, because “invisible hand” is the term economists use to describe the self-regulating nature of markets. I’d like for President Obama to reconcile that with his call today for increased regulation of financial institutions

Anon’ asks if President Obama has read Wealth Of Nations, strongly implying that if he has, or did, he would not have used The Metaphor in his speech. Moreover he would know what the ‘term’ means.

This is problematic because it is not evident that ‘Anon’ has read Wealth Of Nations.

Adam Smith did not ‘coin the phrase’ at all; he used a fairly commonplace metaphor, well known to readers in the 18th century, though less so in the 19th and hardly at all to readers in the 20th century until it was dusted down by some economists in the 1950s, given an entirely bogus meaning, turned into a ‘theory’, a ‘paradigm’ even, and widely publicized to add popular mystical properties (even implying religious purposes) to how markets work compared to state-run communist economies (a bye-product of the Cold War).

Needless to say (or is it?) these pure inventions had had nothing whatsoever to do with Adam Smith and his use of The Metaphor only once in Wealth Of Nations and only once in Moral Sentiments had nothing to do with markets.

Even ‘Anon’ got something right: the ‘invisible hand’ is ‘the term [modern] economists use to describe the self-regulating nature of markets’.

The error is to link this modern use to Adam Smith – and, of course, to mock the President for something he/she has not done himself/herself.



Blogger Gary said...

While I appreciate the thoughtful rebuttal to my post (even if you attribute it to "Anon" when I include my initials "gk" at the end of every post) I stand by the phrasing I used in the post. Every reference I can find attributes the first use of the term "invisible hand" to Adam Smith in The Wealth of Nations.

Here's one:

And another:

And there are multiple authoritative references on this page:

And I have read The Wealth of Nations" and I used the term appropriately in regards to markets. When the phrase was used, Smith was referring to foreign and domestic trade in the same context as we refer to foreign and domestic markets. Here's the quote in its' entirety:

"By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was not part of it. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it."

My disagreement with the President's statement is that you cannot "guide" the invisible hand. You may "guide" visible forces, but the invisible hand (used in Smiths' original context) cannot be "guided".

Note this example from Wikipedia at

In general, the term “invisible hand” can apply to any individual action that has unplanned, unintended consequences, particularly those which arise from actions not orchestrated by a central command and which have an observable, patterned effect on the community.

Note that it applies to "actions not orchestrated by a central command" so I stand by the points I made in the original post - namely that President Obabma doesn't have a clue what the "invisible hand" he referred to actually means.

And you can quote me on that. :-)


10:42 pm  
Blogger Gavin Kennedy said...

Hi Garry

I have responded to your comments and in part to your comments on your Blog, in today's post.

Thank you for your mentions on your Blog. Gavin

4:57 pm  

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